Sunday, October 21, 2012

Speaking of externalities associated with energy use, Robert Stavins throws cold water on "current enthusiasm about carbon taxes
in the academic and broader policy-wonk community":

Cap-and-Trade, Carbon Taxes, and My Neighbor’s Lovely Lawn,
by Robert Stavins: ...my conclusion in 1998
strongly favored a market-based carbon policy, but was somewhat neutral between
carbon taxes and cap-and-trade. Indeed, at that time and for the
subsequent eight years or so, I remained agnostic regarding what I viewed as the
trade-offs between cap-and-trade and carbon taxes. What happened to change
that? Three words:
The Hamilton Project.

...In 2007, the Project’s leadership asked me to write a paper proposing a U.S.
CO2 cap-and-trade system. ... The Hamilton Project leaders said ... they wanted me to make the best case I
could for cap-and-trade, not a balanced investigation of the two policy
instruments. Someone else would be commissioned to write a proposal for a
carbon tax. (That turned out to be
Professor Gilbert Metcalf of Tufts University ... who did a
splendid job!) Thus, I was made into an
advocate for
cap-and-trade. It’s as simple as that. ...

In principle, both carbon taxes and cap-and-trade can achieve cost-effective
reductions, and – depending upon design — the distributional consequences of the
two approaches can be the same. But the key difference is that
political pressures on a carbon tax system will most likely lead to exemptions
of sectors and firms, which reduces environmental effectiveness and drives up
costs, as some low-cost emission reduction opportunities are left off the table.
But political pressures on a cap-and-trade system lead to different allocations
of the free allowances, which affect distribution, but not environmental
effectiveness, and not cost-effectiveness.

I concluded that proponents of carbon taxes worried about the propensity of
political processes under a cap-and-trade system to compensate sectors through
free allowance allocations, but a carbon tax would be sensitive to the same
political pressures, and should be expected to succumb in ways that are
ultimately more harmful: reducing environmental achievement and driving up
costs.

Of course, such positive political economy arguments look much less
compelling in the wake of the defeat of cap-and-trade legislation in the U.S.
Congress and its successful demonization by conservatives as “cap-and-tax.”

A Political Opening for Carbon Taxes?

Does the defeat of cap-and-trade in the U.S. Congress, the obvious
unwillingness of the Obama White House to utter the phrase in public, and the
outspoken opposition to cap-and-trade by Republican Presidential candidate Mitt
Romney indicate that there is a new opening for serious consideration of a
carbon-tax approach to meaningful CO2 emissions reductions?

First of all, there surely is such an opening in the policy wonk world.
Economists and others in academia, including important Republican economists
such as Harvard’s Greg Mankiw and Columbia’s Glenn Hubbard, remain enthusiastic
supporters of a national carbon tax. And a much-publicized meeting in July at
the American Enterprise Institute in Washington, D.C. brought together a broad
spectrum of Washington groups – ranging from Public Citizen to the R Street
Institute – to talk about alternative paths forward for national climate policy.
Reportedly, much of the discussion focused on carbon taxes.

Clearly, this “opening” is being embraced with enthusiasm in the policy wonk
world. But what about in the real political world? The good news is that
a carbon tax is not “cap-and-trade.” ... But if conservatives were able to tarnish
cap-and-trade as “cap-and-tax,” it surely will be considerably easier to label a
tax – as a tax! Also, note that Romney’s stated opposition and Obama’s silence
extend beyond disdain for cap-and-trade per se. Rather, they
cover all carbon-pricing regimes.

So as a possible new front in the climate policy wars, I remain very
skeptical that an explicit carbon tax proposal will gain favor in Washington, no
matter what the outcome of the election. ...

I would personally be delighted if a carbon tax were politically feasible in
the United States, or were to become politically feasible in the future.
But I’m forced to conclude that much of the current enthusiasm about carbon
taxes in the academic and broader policy-wonk community in the wake of the
defeat of cap-and-trade is – for the time being, at least – largely a
manifestation of the grass looking greener across the street.

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Stavins: Cap-and-Trade, Carbon Taxes, and My Neighbor’s Lovely Lawn

Speaking of externalities associated with energy use, Robert Stavins throws cold water on "current enthusiasm about carbon taxes
in the academic and broader policy-wonk community":

Cap-and-Trade, Carbon Taxes, and My Neighbor’s Lovely Lawn,
by Robert Stavins: ...my conclusion in 1998
strongly favored a market-based carbon policy, but was somewhat neutral between
carbon taxes and cap-and-trade. Indeed, at that time and for the
subsequent eight years or so, I remained agnostic regarding what I viewed as the
trade-offs between cap-and-trade and carbon taxes. What happened to change
that? Three words:
The Hamilton Project.

...In 2007, the Project’s leadership asked me to write a paper proposing a U.S.
CO2 cap-and-trade system. ... The Hamilton Project leaders said ... they wanted me to make the best case I
could for cap-and-trade, not a balanced investigation of the two policy
instruments. Someone else would be commissioned to write a proposal for a
carbon tax. (That turned out to be
Professor Gilbert Metcalf of Tufts University ... who did a
splendid job!) Thus, I was made into an
advocate for
cap-and-trade. It’s as simple as that. ...

In principle, both carbon taxes and cap-and-trade can achieve cost-effective
reductions, and – depending upon design — the distributional consequences of the
two approaches can be the same. But the key difference is that
political pressures on a carbon tax system will most likely lead to exemptions
of sectors and firms, which reduces environmental effectiveness and drives up
costs, as some low-cost emission reduction opportunities are left off the table.
But political pressures on a cap-and-trade system lead to different allocations
of the free allowances, which affect distribution, but not environmental
effectiveness, and not cost-effectiveness.

I concluded that proponents of carbon taxes worried about the propensity of
political processes under a cap-and-trade system to compensate sectors through
free allowance allocations, but a carbon tax would be sensitive to the same
political pressures, and should be expected to succumb in ways that are
ultimately more harmful: reducing environmental achievement and driving up
costs.

Of course, such positive political economy arguments look much less
compelling in the wake of the defeat of cap-and-trade legislation in the U.S.
Congress and its successful demonization by conservatives as “cap-and-tax.”

A Political Opening for Carbon Taxes?

Does the defeat of cap-and-trade in the U.S. Congress, the obvious
unwillingness of the Obama White House to utter the phrase in public, and the
outspoken opposition to cap-and-trade by Republican Presidential candidate Mitt
Romney indicate that there is a new opening for serious consideration of a
carbon-tax approach to meaningful CO2 emissions reductions?

First of all, there surely is such an opening in the policy wonk world.
Economists and others in academia, including important Republican economists
such as Harvard’s Greg Mankiw and Columbia’s Glenn Hubbard, remain enthusiastic
supporters of a national carbon tax. And a much-publicized meeting in July at
the American Enterprise Institute in Washington, D.C. brought together a broad
spectrum of Washington groups – ranging from Public Citizen to the R Street
Institute – to talk about alternative paths forward for national climate policy.
Reportedly, much of the discussion focused on carbon taxes.

Clearly, this “opening” is being embraced with enthusiasm in the policy wonk
world. But what about in the real political world? The good news is that
a carbon tax is not “cap-and-trade.” ... But if conservatives were able to tarnish
cap-and-trade as “cap-and-tax,” it surely will be considerably easier to label a
tax – as a tax! Also, note that Romney’s stated opposition and Obama’s silence
extend beyond disdain for cap-and-trade per se. Rather, they
cover all carbon-pricing regimes.

So as a possible new front in the climate policy wars, I remain very
skeptical that an explicit carbon tax proposal will gain favor in Washington, no
matter what the outcome of the election. ...

I would personally be delighted if a carbon tax were politically feasible in
the United States, or were to become politically feasible in the future.
But I’m forced to conclude that much of the current enthusiasm about carbon
taxes in the academic and broader policy-wonk community in the wake of the
defeat of cap-and-trade is – for the time being, at least – largely a
manifestation of the grass looking greener across the street.